Today’s businesses rely heavily on artificial intelligence (AI) to perform important tasks such as handling customer questions, discovering economic risks, managing supply chains, and supporting healthcare decisions. AI can help improve speed and accuracy, but it also poses risks that are not covered by older insurance policies. AI can make the wrong choices, provide incorrect information, or fail due to software issues or biased data.
These issues can lead to costly litigation, regulatory fines, and damage to the company’s reputation. To address these new challenges, AI Liability Insurance has emerged as the necessary protection. This insurance helps businesses manage financial and legal issues that arise from AI failures.
Understanding the rise in AI in business
The use of AI in business has grown significantly in recent years. By the second half of 2024, research has shown that over 70% of companies in areas such as finance, healthcare, manufacturing and retail are already using AI tools. For example, McKinsey & Company reported that around 78% of organizations had adopted AI with at least one business function by the end of 2024. The Boston Consulting Group finds that 74% of companies struggle with measuring value from AI, showing challenges despite widespread adoption.
AI poses new risks that are different from older technologies. One major risk is AI hallucination when AI gives false or misleading answers. For example, you might say something that sounds correct but is actually wrong. This can lead to bad decisions based on incorrect information. Another risk is model drift. Over time, the data changes, which can lead to less accuracy in AI models. When fraud detection drifts AI, it can miss new fraud patterns and cause loss or damage to your reputation.
There are other risks too. Attackers can corrupt AI training data. This is a problem called data addiction, and AI can work incorrectly. Privacy, bias and ethical issues are concerning. The new law aims to govern the use of AI and set strict rules, as the European Union’s AI law will soon be expected).
Actual cases illustrate the serious risks pose by AI systems. In September 2023, the Consumer Financial Protection Bureau (CFPB) gave guidance that lenders using AI should not only use common reasons, but also clearly explain why they refuse credit. This demonstrates the need for fairness and openness in AI decisions.
At the same time, AI mistakes in medical diagnosis have raised concerns. A 2025 report by ECRI, a healthcare safety group, warns that inadequate AI diagnosis can lead to false diagnosis and incorrect treatment, and harm patients. This report requires better rules to ensure that healthcare AI works safely.
These examples show that AI obstacles can cause legal, financial and reputational issues. Usually, normal insurance has not been done for special AI challenges and often does not cover these AI-related risks. Experts say that AI risks are growing rapidly and new ways to manage them are needed. To reduce these risks, more companies are obtaining AI liability insurance. This type of insurance can help protect your business from costs and legal issues caused by AI errors, biases, or failures. AI Liability Insurance allows businesses to better deal with AI risks and stay safe.
What is AI Liability Insurance? What does it cover?
AI Liability Insurance is a special type of coverage that is made to fill the gaps left by traditional insurance such as errors and omissions (E&O) and commercial general liability (CGL). While regular policies often treat AI issues as normal technical errors or cyber risks, AI Liability Insurance focuses on risks from how AI systems are designed, used and managed.
This insurance usually covers:
- Failure of AI systems that causes financial loss or harm.
- A false or misleading AI output that can sometimes be called AI hallucinations.
- Misuse of data or intellectual property in AI models.
- Fines and penalties for violating new AI laws, such as the European Union’s AI law, could fine up to 6% of global revenue.
- Data breaches or security issues linked to AI integration.
- Legal costs from a lawsuit or investigation related to AI failure.
Why do I need AI liability insurance and who will provide it?
As more companies use AI, the greater the risk. AI systems can act unpredictably and face new rules from the government. Therefore, AI is different from past technologies and regulations, so managing AI risk requires new ideas.
The government is writing stricter laws on AI safety and fairness. The EU AI law is an example, setting clear rules and heavy penalties for companies that do not follow the law. Similar laws can be found in the United States, Canada and elsewhere.
Insurance companies are beginning to offer special AI liability products to meet these needs. for example:
- Coalition Insurance covers risks from generated AI, including Deepfake scams and security issues.
- RELM Insurance offers solutions such as Pontaai ​​to cover bias, IP violations and regulatory issues.
- Munich Re’s AISURE™ protects businesses from AI model failures and performance degradation.
- Similarly, the AXA XL and Chaucer groups have third-party AI risk and generation AI exposure approval.
With AI becoming part of its daily operations, AI Liability Insurance helps businesses reduce financial risk, meet new laws, and use AI responsibly.
Key Features and Benefits of AI Liability Insurance
AI Liability Insurance offers several important benefits that help businesses manage the unique risks posed by AI.
One of the main benefits is financial protection, which covers costs associated with AI failures. This includes covering the insured company’s own damages, such as payments of third party claims, such as litigation that contains bias, discrimination, or misinformation, and management of business disruptions and reputational harms due to AI systems failures.
Additionally, AI liability insurance often provides legal defense coverage and helps to defend against claims or regulatory investigations, an important feature, taking into account the complexity of legal issues related to AI. Unlike typical cyber or liability insurance, these policies are specifically designed to cover AI-related risks such as hallucinations, model drifts, and software bugs.
Companies can customize policies to fit specific AI usage and risk profiles. For example, healthcare AI developers may need compensation focused on patient safety, while financial companies may prioritize fraud detection risk. Also, many AI liability insurance offers a wide range of territorial restrictions. This is important for multinational companies deploying AI in multiple countries.
Additionally, insurers may require policyholders to follow best practices such as maintaining transparency, conducting regular audits, and implementing risk management plans. This not only helps to promote safer AI deployments, but also helps build trust with regulators and customers. Together, these features provide businesses with a reliable way to confidently handle AI risks, protecting their operations, finances and reputation.
Should AI Liability Insurance be considered? Use cases and industry examples
AI liability insurance is important for businesses using AI technology. Risks from AI may vary based on industry and how AI is applied. Companies need to review AI obstacles, legal issues, and exposure to financial risks to determine whether this insurance is required. Some industries face higher AI risks:
- health care: AI can help diagnose and treat, but errors can harm the patient and cause liability issues.
- finance: AI is used for credit decisions and fraud detection. Mistakes can lead to unfair decisions, losses, or regulatory issues.
- Self-driving cars: Self-driving cars rely on AI, so insurance protection is required for accidents caused by AI errors.
- Marketing and content: Generated AI creates content that could infringe copyright or spread false information, putting legal trouble at risk.
- Cybersecurity: AI systems detect threats, but can fail due to attacks or errors, causing data breach and liability.
Who needs AI liability insurance?
- AI Developers and High-Tech Companies: They face risks such as bias, false output, and intellectual property disputes during the creation of AI.
- Businesses using AI tools: Companies using AI created by others need protection if these tools fail or cause security issues.
- Risk Managers and Leaders: They need to assess the organization’s AI risk and ensure appropriate insurance coverage.
As AI becomes more common, AI Liability Insurance is a critical protection for businesses managing AI risk. If necessary, you can help learn about a specific insurance contract from your top provider.
Real-world examples and lessons learned
A real-world example shows how AI failures can cause major business problems. AI Liability Insurance is still new, but it can prove why you need it.
In 2023, New York lawyers got in trouble to file a legal brief with a configured case quote created by ChatGpt. The court said the lawyers did not verify the accuracy of the AI, leading to legal penalties.
In 2024, Air Canada’s AI chatbot mistakenly promised a bereavement discount, but the airline didn’t respect it. This caused a legal dispute, and the court ordered Air Canada to pay its clients. This indicates that how incorrect AI information is poses legal and financial risks.
Deepfake Scams is an increasing threat to businesses. For example, a British energy company lost $243,000 after criminals used deepfakes of voices generated by AI to deceive the company by impersonating executives. This type of AI-driven fraud exposes businesses to serious financial and security risks. AI Liability Insurance will help you cover losses from such fraud and protect your business from emerging AI-related threats.
The lessons learned from the above incidents are clear. Failure of AI can damage lawsuits, fines and reputation. Typical insurance often does not adequately cover AI risks, so businesses need AI liability insurance. Companies using AI should frequently check their insurance and update it to meet new rules and risks.
Conclusion
AI is becoming an important part of many companies, but it also poses new risks that older insurance doesn’t cover well. Failures such as wrong decisions, misleading information, and security threats can cause serious financial, legal, and reputational harm. The actual cases show that these risks are realistic and growing.
AI Liability Insurance offers particular protection against these challenges. This will help you cover costs associated with AI mistakes, legal claims and fraud while supporting compliance with new laws.
Companies in domains such as healthcare, finance, and cybersecurity are particularly required to receive this compensation. As AI use grows, it is important to regularly review and renew your insurance to maintain protection. AI liability insurance is no longer an option. In a world where AI plays a bigger role every day, it’s the steps you need to manage risk and keep your business safe.
